* Dollar down 0.2 pct vs yen at 90.24 yen
* Obama bank plan hurts risk sentiment
* Euro on track for 1.6 pct fall vs dollar on week
(Adds quote, updates prices, changes dateline, byline)
By Michael O'Boyle
NEW YORK, Jan 22 (Reuters) - The dollar slipped on Friday while the yen gained as investors pared back riskier trades, unnerved by U.S. President Barack Obama's proposals to rein in high-stakes bets by U.S. banks.
The yen, a safe haven currency which benefits when investors become jittery, touched a five-week high against the dollar and hit a nine-month peak against the euro, as global stock markets slumped for a second day in the fallout from Obama's proposals to limit banks' trading activities.
"Since there is no U.S. data today, the market is still focused on the impact of the proposed banking legislation," said Kathy Lien, director of currency research at GFT in New York. "Whenever there is political uncertainty, traders always sell first and ask questions later," Lien added.
The dollar hit a session low of 89.78 yen, according to electronic trading platform EBS. But it bounced back to trade at 90.24 yen, down 0.2 percent on the day.
The euro hit session low against the yen of 126.55 yen. But further falls were limited as the pair bounced back above a key chart support of 127 yen to trade at 127.38.
Obama's proposals, which require congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
Amid the uncertainty of the proposals' impacts, investors sought to go into the weekend squaring out dollar positions following strong gains from the U.S. currency in recent weeks, analysts said.
"Although the impact of Obama's proposed banking regulation changes is clear enough on equities, currency markets seem to see the implications as ambiguous," said Adam Cole, global head of currency strategy at RBC Capital Markets.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was little changed, edging up 0.04 at 78.39.
"A sharp fall in dollar/yen was the most notable movement and as one of the few trades that is simultaneously short risk and short dollar, further weakness would be our favored way of playing downside equity risk," Cole added.
On Thursday, U.S. stocks suffered their worst one-day percentage drop since October following Obama's announcement of tough restrictions on banks that would squeeze profits.
Benchmark U.S. stock indexes softened on Friday as the VIX viewed as gauge of stock market investor apprehension, jumped over 6 percent.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, edged up 0.09 at 78.39.
TRIPLE WHAMMY
Obama's proposals were just the latest setback in a market hampered by fiscal concerns in euro zone peripheral economies and by speculation China would take more steps to withdraw liquidity to stem inflation.
Concerns about the fiscal situation in Greece and other smaller euro zone countries pushed the euro to a 6-month low against the dollar this week.
Against the dollar, the euro rose 0.2 percent at $1.4117 EUR=> but was still on track for a 1.6 percent decline for the week.
"Taken together the three issues add considerably to uncertainty about prospects for the global recovery, with the possibility of a serious restriction of Chinese credit the most important factor," Barclays analysts said in a note.
(Additional reporting by Tamawa Desai in London; editing by W Simon)